PYPL Stock Falls 10% Post Q2 Earnings: Should You Buy, Hold or Fold?

PayPal Holdings PYPL is no stranger to market volatility, but the more than 10% post-earnings selloff following its second-quarter 2025 results caught many investors off guard. 

After delivering an earnings beat and raising full-year guidance, why did the stock tumble? The reaction highlights a growing disconnect between PayPal’s improving fundamentals and elevated market expectations. 

With the company showing signs of operational progress while navigating competitive and macroeconomic challenges, investors are now weighing whether this dip reflects deeper concerns or a potential mispricing of a business in transition. Let’s delve deeper and find out.

PYPL’s Q2 Snapshot

On paper, PayPal’s second quarter was solid. The company reported revenues of $8.3 billion, up 5.1% year over year and topped the consensus mark by 2.3%. Total Payment Volume (“TPV”) climbed 6% to $443.5 billion, and non-GAAP EPS came in at $1.40, denoting a 17.6% increase year over year and well ahead of the Zacks Consensus Estimate of $1.30. Non-GAAP operating income rose 13%, and operating margins expanded 132 basis points to 19.8%%.

The company also raised its full-year guidance. It now expects non-GAAP EPS of $5.15-$5.30 (up from $4.95-$5.10) and transaction margin dollar growth of 5%-6%. Free cash flow guidance was reaffirmed at $6-$7 billion, and capital return remained strong with $1.5 billion in share buybacks during the second quarter, with management projecting share repurchases to be roughly $6 billion in 2025.

Why Did PYPL Shares Fall? Decoding the Drop

While the earnings beat was clear, the sustainability of the drivers was questioned. Transaction margin dollar (TM$) benefited from a roughly 1.5-point one-time contribution from the renewal and expansion of PayPal’s relationship with a key payment partner. Moreover, PYPL expects continued momentum in transaction revenues, but with lower growth in other value-added services revenues compared to the second quarter. This incorporates the effect of interest rate headwinds and a more difficult prior-year comparison for credit growth.

Branded checkout TPV, a closely watched KPI, grew just 5% year over year FX-neutral, down slightly from the first quarter of 2025. This, paired with management commentary about softening U.S. retail spending and tariff-related headwinds in Asia, stoked short-term doubts.

However, these concerns appear more tactical than structural. The broader narrative around PayPal’s recovery and reinvention remains intact.

Venmo and Branded Payments Are Gaining Steam

Despite macro noise, PayPal’s Venmo business is showing solid traction. Venmo revenues jumped more than 20% in the second quarter, while TPV rose 12%, accelerating quarter over quarter to the highest growth rate in three years. Debit card TPV across PayPal and Venmo surged 60%, and Pay with Venmo TPV soared 45% in the quarter. The company achieved a roughly 25% increase in Pay with Venmo monthly active accounts, with its merchant network continuing expansion.

Branded checkout still represents a vital growth driver. While growth slowed modestly, new checkout integrations are ramping up. More than 60% of U.S. branded volume is now on PayPal’s upgraded experience, and international rollouts in the U.K. and Germany are underway. These transitions take time but offer long-term payoff in higher conversion and loyalty.

PayPal Building Next-Gen Payments Ecosystem

Beyond the numbers, PayPal is investing in future-proofing its business. Its recently announced “PayPal World” initiative, with launch slated this fall, will initially unite PayPal, Venmo, Mercado Pago, NPCI’s UPI and Tenpay Global under a cloud native, API framework, enabling interoperability for nearly 2 billion global users. This could unlock significant TPV upside across borders.

Additionally, PayPal is exploring “agentic commerce” experiences powered by AI partners like Anthropic and Salesforce. On the crypto front, PayPal’s stablecoin PYUSD is now integrated across platforms, with “Pay with Crypto” expected soon. These innovations position PayPal not just as a payments company but as a broader commerce platform.

Even if short-term branded volume growth remains mixed, the company has multiple levers for margin and earnings upside in 2026 and beyond.

PYPL Stock Price Performance

PYPL shares have dropped 18.3% year to date, largely due to intensifying competition in the fintech sector. Rivals like Visa Inc. V and Mastercard Incorporated MA continue to expand their offerings, challenging PayPal’s dominance in digital payments. Broader macroeconomic pressures and uncertainty surrounding the tariff policy have also dampened investor sentiment. While PYPL has struggled, Visa shares have climbed 11%, and Mastercard has risen 6.2% over the same timeframe.

PayPal Shares Trading Cheap

However, with the decline, PayPal shares are trading cheap, as suggested by the Value Score of A. In terms of forward 12-month P/E, PYPL stock is trading at 12.82X compared with the Zacks Financial Transaction Services industry’s 21.83X. 

The stock is also cheaper than competitors, including Visa and Mastercard. Shares of Visa and Mastercard are currently trading at P/E of 27.93X and 31.78X, respectively.

PYPL’s Estimate Revisions Exhibit Positive Trend

PayPal’s estimate revisions reflect a positive trend for full-year 2025 and 2026. The Zacks Consensus Estimate for 2025 earnings is pegged at $5.18 per share, suggesting 11.4% growth over 2024. The consensus mark for 2026 earnings stands at $5.75 per share, calling for an 11.0% increase year over year.

PayPal: Buy the Pullback, Not the Panic

PayPal’s second quarter wasn’t perfect, but it was progress. The stock’s 10% post-earnings drop says more about market expectations than company fundamentals. With strong execution in Venmo, improving branded checkout capabilities, and solid innovation in global payments and AI, PayPal is setting the stage for a multi-year recovery.

Short-term noise creates long-term opportunity. Therefore, it seems prudent for investors to look past the market’s knee-jerk reaction and buy PayPal stock on weakness. The combination of buybacks and solid cash generation gives the stock a solid foundation for upside, and the future of digital payments still runs through PYPL.

PayPal currently has a Zacks Rank #2 (Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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